Andrew Lokenauth on Nostr: Here's a simple way to think about Accrual Accounting: Say you own a store and sell ...

Here's a simple way to think about Accrual Accounting:

Say you own a store and sell Avocados:

• You buy 100 Avocados for $1 each ($100 cost)

• You sell 50 Avocados for $5 each ($250 revenue)

Let’s calculate profit:

• Cash Method:
Expenses = $100 (all Avocados bought)
Revenue = $250
Profit = $150

• Accrual Method:
Expenses = $50 (cost of 50 Avocados sold)
Revenue = $250
Profit = $200

Accrual Accounting shows a higher profit because it matches the cost of Avocados sold to the revenue earned